Lecture 11

Question 1

What types of things affect how a company prices their products?

Answer 1

1. Internal environment
   - Company’s Costs, Existing Product Line, Product Life Cycle
2. External environment

Competition
* How are competitors pricing similar products?
* Are there substitutes?
* How will competitors respond to our price?

Economic Environment
In a good economy, consumers are generally more accepting of price increases than in a bad economy. When the economy is bad, low-cost businesses do well

Consumers
What are consumers willing to pay for our product?

Distributors
Is the retailer or wholesaler pressuring us to adopt a price?

Legal Environment
In some markets (e.g., energy, drug prices) the government regulates prices.

Question 2

What are the different pricing objectives?

Answer 2

1. Profit-oriented objectives
   - Make an acceptably high profit to meet company goals (e.g., paying the small business owner; satisfying shareholders)
   - Often, companies set a “target return” (for every $1 I invest in this product, how much do I want to make?)
2. Competition-oriented objectives
   - Focuses on capturing market share (often through lower prices)
   - It is easier to estimate market share than “maximize” profit
   - Lower short-term profits in favor of higher long-term profits
3. Sales-related objectives
   - Focuses on selling a certain number of product units
   - Often used as a short-term strategy when companies over-produce a good.
   - Profit- or competition-oriented strategies make more sense in the long-term
4. Customer perception-related objectives
   - How do the consumers perceive the price
   - Often higher prices signals exclusivity and luxury, while lower signals accessibility
5. Distribution Intermediary-related objectives
   - The demands of distribution intermediaries (ex: Walmart) can drastically affect the pricing for many producers

Question 3

What are the different pricing strategies?

Answer 3

1. Pricing Strategies determined by Competitive Pressure

• Price leadership: leader strategy, adjusting a price and expecting competitors to follow
• Competitive parity strategy: setting the same price as the market average or leader
• Low-cost strategy: lowest price on the market, only viable for businesses with a sustainable competitive advantage

2. Pricing Strategies determined by Consumer Preferences

• Setting a price that will project the desired image of the product to customers
• Price signaling (ex.: prestige price)

3. Pricing Strategies determined by Business Costs

• Cost-plus pricing
• This means adding a small, sustainable margin above the cost to produce the product
• Ignores info about consumers and competition

4. Pricing strategies for a product line

• Complementary product pricing: central product low price and complementary goods at a high price
• Price bundling: group of items at a lower price that individual prices combined
• Customer value pricing: pricing a product very competitively, but offering fewer options than others in the line (ex.: cheaper plane tickets but nonrefundable)

5. Price and product strategy

• Skimming strategy: setting a higher initial price than is later lowered
• Penetration strategy: initial low price (price often remain low)
• Price reduction strategy: reduce price over time to deal with increased competition

Question 4

What is sales promotion?

Answer 4

The media and non-media marketing pressure applied for predetermined, limited period at the level of consumer, retailer, or wholesaler in order to stimulate trial, increase consumer demand, or improve product availability.

Question 5

What are the two types of sales promotion?

Answer 5

1. Pull strategy
   - Targets the consumer
   - Aims to increase demand (heighten their desire for the product) to attract them to the point of sale
   - Ex.: Discount coupon, contest, demonstration, promotional items, samples, bonus, loyalty program, etc.
2. Push strategy
   - Target the distribution channel members (retailers or wholesailers)
   - Aims to motivate them to develop sales to the end consumers. “Push” the product through the distribution chain to the end consumers.
   - Ex.: Gifts, sales contest, promotional items, sales premium (bonus to those who sell more), retailer premium (bonus to those who buy more).

Question 6

What are the benefices and weaknesses of sales promotion related to price strategy?

Answer 6

Benefices:
- Push potential buyers to action
- Particularly good when consumers are considering different options
- Easy to put in place and relatively inexpensive

Weaknesses:
- Overuse of promotions with price cut will reduce the product’s value in the long run (promotional price becomes the normal price for consumers)
- Excessive use of promotions may also suggest to consumers that the normal price of the product is too high and must be reduced.
- Overuse can also lead consumers to put too much importance on the price instead of on the brand, which can reduce brand loyalty.

Question 7

How do you set up a promotional campaign?

Answer 7

1. Situation analysis

• SWOT analysis to assess internal and external environment, including competition
• Figuring out: how are we currently positioned? Which target is the most appealing? Positionning? Allocation of budget? Key benefits?

2. Planning

• Setting and prioritization of communication objectives, selecting performance indicators, defining the key message, choosing the communication media, allocating budget and resources

3. Creation and implementation

• Producing advertising materials

4. Deployment and follow-up

• measuring and updating performance indicators
• optimizing and adjusting initiatives, if possible and if necessary

Question 8

What are the different types of communication channels?

Answer 8

• Paid Media: Content providers that sell space to advertisers (advertising, sponsorship)
• Owned Media: The broadcasting channels that belong to the brand (public & media relations)
• Earned Media: Content not generated by the brand (e.g., word of mouth or positive news stories) (direct & relationship marketing, experiential marketing, content marketing)

Question 9

What are the different categories of digital marketing?

Answer 9

• Outbound marketing: when consumers are online, how can we make sure they see our brand?

We measure the performance of outbound marketing using…
* Ad Impressions: How many consumers saw the ad?
* Click-Through Rate: What percentage of the “impressions” resulted in consumers clicking through to our website?
* Cost per Click-Through: The cost of an advertisement divided by how many click-throughs it generated
* Purchase Rate: Complex mathematical models can help advertisers predict if seeing an ad led to a sale (online or offline)

• Paid listing: pay money to be listed at the top of search engines (identify key words relating to their offering)
• Display advertisement: advertisements that appear on web pages based on their browsing history or native advertising (brands create content that is embedded into the editorial content of a website)
• Inbound marketing: The process whereby a business improves its position in the results provided by a search engine
• Mobile marketing: marketing to consumers on mobile devices
• Social media: using social media to have conversation with your customer

Question 10

What are the advantages of being active on social media?

Answer 10

• The ability to respond quickly to current events
• The ability to engage directly with consumers (and other brands)
• The ability to target consumers though influencer marketing

Question 11

What are the different steps of the selling process? Describe them.

Answer 11

1. Prospecting
   - seek out potential customers, create a target list and decide how much effort to dedicate to them (are they worth it?)
   - Identify (data, Internet, networking, etc.); Solicit (seek and meet); Validate their interest (to invest time or not); Follow-up (plan a meeting)
2. Pre-approach
   - Prepare for the meeting with the customer, set SMART objectives, it shows that you listen to them and care for their need.
   - Determine customer profile and use preparation tools
3. Approach
   - Initial contact, general interest message (our company…( and gentle/smooth transition
4. Needs assessment
   - The art of asking questions to correctly identify the needs
5. Presentation of a business solution
   - List needs, prepare business proposal, present a business solution, handle the customer’s objections and resistances
6. Handling objections
   - Acknowledge the objection, identify needs, present a business solution adapted to the customers needs, validate the business solution
7. Closing the sale and gaining customer commitment
8. Follow-up
   - If there is a problem, fix it -> customer satisfaction